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There have been notable factors that have supported the S&P 500’s growth throughout the past decade.
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Currently, a high CAPE ratio might suggest that future investor returns could be lower.
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Predicting the next year is tough, but it’s wise to keep a rational perspective.
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10 stocks we like better than Vanguard S&P 500 ETF ›
The Vanguard S&P 500 ETF (NYSEMKT: VOO) allows investors to gain exposure S&P 500. This Exchange Traded Fund (ETF) invests in stocks from about 500 large, successful companies, making it a straightforward investment in the growth of the U.S. economy.
In the last year, the ETF produced a total return of 17% (as of January 16). So, how has Vanguard S&P 500 ETF performed over the last year?
There’s been no dissatisfaction among investors regarding the Vanguard S&P 500 ETF’s results. Over a decade, it delivered a total return of 337%, which averages out to an annual gain of 15.9%. This performance seems to stem, I think, from three key themes.
The first is the overall supportive macroeconomic environment. Interest rates have often stayed below 2%, which is historically low. This situation lessens borrowing expenses, encourages business investments, and boosts consumer spending, ultimately increasing company revenues and profits. With the Fed again lowering rates and moving towards quantitative easing, this trend continues.
The stock market’s surge has also benefited from significant growth in technology. Firms within the so-called “Magnificent Seven” have global reach, with products that encourage rapid growth and create considerable profits. They’ve not only succeeded in their sectors but also captured larger portions of the stock market.
In my opinion, passive investing might be the least appreciated of these influences. At the end of 2023, passive funds overtook active funds for the first time.
This trend has injected substantial capital into the market that might not have otherwise found its way there. The rise of commission-free trading has simplified access to the stock market, enhancing buying power.
Despite the Vanguard S&P 500 ETF’s strong performance, some market observers are suggesting it could be overvalued. Currently, the CAPE ratio indicates that the S&P 500 is quite pricey, with a ratio of 40.8. This level hasn’t been seen since the late 1990s dot-com bubble.
